Tribunal considers 'living' at a property for CGT purposes

In the recent case of Hezi Yechiel v HMRC [2018] TC06829, the First-Tier Tribunal (FTT) found that a property owner did not prove a sufficient quality of his occupation of his property in order to claim Capital Gains Tax (CGT) Private Residence Relief (PRR).

CGT is a tax on the profit you make when you sell an asset, such as a property, that has increased in value. You pay tax on the gain that you make rather than the amount of money you receive. You will automatically get PRR and not have to pay CGT when you sell your home if you meet all of the following conditions: it has been your main home since you bought it, you have not rented it out, used part of it for business only, did not buy it solely to make a gain, and the property is set in grounds under 5,000 square metres. However, you may have to pay CGT if you make a profit when you sell business premises, a buy-to-let property, land, or inherited property.

Mr Yechiel brought a residential property to renovate and live in with his new wife but the marriage failed. He stayed in the flat between April and July 2011 but did not cook there, rarely used the utilities, had minimal furniture, and did not take his son to stay there. Mr Yechiel sold the property at a substantial gain and claimed CGT PRR but HMRC denied this relief as it did not believe that the property had ever been his only, or even main, residence.

Mr Yechiel appealed to the FTT, which found that he slept at the property, but did not cook there and mainly ate takeaway food standing up, in the car, or in bed and it was presumed that he did not have a chair or table. He also spent significant periods of time at his parents’ house in the day, where he ate a significant number of meals and his laundry was done for him.

The FTT considered that for Mr Yechiel to achieve a ‘quality’ of his occupation, this involved sleeping, as well as periods of ‘living’ at the property including cooking, eating sitting down, and spending periods of leisure there. The FTT found the residence did not have sufficient ‘quality’ for the property to qualify as his ‘only or main residence’.

This case highlights the extent of what constitutes ‘living’ in a property as your only or main residence in order to claim PRR and therefore not pay CGT on the sale. If you are hoping to claim this relief, you will likely need to prove that you eat, sleep, and pass the time at your property, as well as doing your daily chores there, such as cooking, cleaning, and washing.

To discuss any of the issues raised above, please contact a member of the Private Client team on 01384 410410.